Realtor Payday Loans

WE’RE HEARING about the ability of a real estate broker to obtain a cash advance on an anticipated commission to be earned at closing. This is the first time I have come across this. I think it raises a number of questions. To my knowledge there is no similar loan, advance, etc., available to a mortgage broker or LO other than your traditional loan shark who could care less if you have a commission coming due when a loan closes. Could you imagine what the CFPB would have to say about this in relation to mortgage brokers?

As it turns out there are financial entities out there (in fact some are franchises) that will essentially loan money based on an anticipated real estate commission. Rather than call it a loan the fancy term is factoring. However you want to describe it the enticement is that you can use the money for cash flow however you would like. One company charges 8% to 14% of the commission you would earn depending on how long until closing.

There are a number of “what ifs” involved in the factoring process such as what if the underlying real estate deal does not close. After all rule No. 1 has and will always be that a deal is not closed until it closes. My main question is what happens if your real estate agent needs cash. There would be the potential for abuse. That is, your real estate agent might encourage you to drop your price or accept an offer you might not be thrilled with—yet another ethical dilemma for the real estate process.

Meanwhile, starting next week the Michigan Association of Realtors has revised forms available for members. The forms relate to agency agreements and also purchase/sales contracts. The new forms allow for electronic signatures. Hopefully mortgage loan underwriters will not have a problem with that. The new forms are supposed to be “cleaner and clearer” and thus better for business. It will remain to be seen how long it takes for local area boards of Realtors to adopt a uniform statewide form.

I had a sale of land deal last week that bears mentioning. The seller contacted me at the last minute. She had two concerns. One was how the real estate tax adjustment was being calculated. The local practice was not what she was used to. She felt she was being shortchanged a few bucks. When she told me it took over a year to sell the land I suggested she take the money and run.

Then my seller client mentioned she was not going to the closing which was two hours away. Instead a notary was coming to her house to notarize the deed and they would mail her a $120,000 check next week. After speaking with me some more she went to the closing. Her other concern or need was that the title company wanted to record some probate court paperwork related to her ownership of the property.

I handled the probate. The client inherited the property from her deceased mother. I prepared the deed out of the estate to the client. The title company said they wanted to record the probate court letters of authority. Letters of authority prove the executor/personal representative had authority to sign the deed. I never record the letters of authority since they are a public court record. At first I was impressed by the title company’s effort to avoid fraud.

I spoke with the title company, actually a national underwriter, to ask them for a citation to the statutory requirement to record the letters of authority. Someone later emailed me to say there is no statutory requirement. The company preferred to record the letters rather than “go down to probate.” I always thought I was paying for title companies to actually search public records as part of their job to earn a title insurance premium.

Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at jamcd@comcast.net.